Buying a House for Dependent Family Members
Here at Manchester Mortgages we’re all about finding the right mortgage for you. This is an interesting case study we’ve written involving buying a property for dependent family members.
Our clients were in their early 50s with joint earnings of £75,000 per year. They had lived in their semi-detached home since 1996.
Their property was valued at £150,000 with a mortgage of £20,000 outstanding with 3 years remaining at a cost of £650 per month.
Following the death of their elderly neighbour, the house adjoining our clients’ property came up for sale at £110,000. Our clients wished to purchase this property so that one set of parents could live next to them and be looked after by our clients but still keep their independence.
Our clients wanted to raise £40,000 to provide a deposit for the purchase, solicitor costs, additional stamp duty and funds to refurbish the new property.
The parents’ existing property would be sold which would raise approximately £80,000 after sale costs, but the purchase needed to be completed before these funds would be available.
One of our clients was a Fire Fighter and as such would receive a large tax-free pension payout in around 3 years’ time which he wanted to use to repay the outstanding borrowing on both properties.
The majority of lenders do not lend for adjoining properties and the house would be a second property for dependent relatives to live in.
Our clients did not have the funds available to provide the deposit, solicitor costs, additional stamp duty required (second property) or the funds for the refurbishment.
Our client’s monthly budget was £ 1,000 per month for all mortgage payments.
After researching the market we found a lender offering a competitive two year tracker rate at 2.19% with no Early Repayment Charges (penalties) who was willing to accept an adjoining property and the purchase of a second property for dependent relatives.
For the purchase the lender only required 15% deposit (£16,500 on a £110,000 purchase price) leaving a mortgage of £93,500. To reduce the monthly mortgage payment the mortgage was applied for over a 17 year term which meant a mortgage payment of £550 per month.
We then recommended taking a Further Advance from their existing lender of £ 60,000 rather than the £ 40,000 figure the clients thought they needed. By taking the additional £20,000 they were able to repay their existing mortgage of £20,000 which was costing £650 per month and take the Further Advance over 17 years which meant mortgage payments of £343 per month.
The Further Advance was taken with the existing lender on a 2 year fixed rate of 2.24%.
Therefore both mortgage payments totalled £893 per month which was within client’s budget.
The tracker mortgage with no penalties means that on sale of the parents’ property the £80,000 can be used to reduce the mortgage to approx £ 13,500.
In a couple of years both mortgages will be cleared in full from our client’s tax-free lump sum pension payout.
Our clients now own both properties with flexible repayment options and one set of parents have retained their independence.
By recommending increasing the Further Advance to £60,000 and repaying their existing mortgage Manchester Mortgages saved our clients £ 536 per month and enabled them to achieve their goal well below their monthly budget of £1,000.
If they wish, the clients can make overpayments without penalty to either mortgage (unlimited on tracker mortgage and up to 10% per annum within 2 year fixed rate mortgage).
All mortgages have some sort of twist to them – we know because we deal with them every day. Contact Manchester Mortgages on 0161 706 0242 to discuss your requirements or complete and send the Contact Us form so that we can solve your mortgage problems